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Will Extending the Ethanol Tax Credit Slow Progress Toward Advanced Biofuels?
The federal tax credit for ethanol is among the most controversial energy- or environment-related policies in the country. The volume on all sides of the issue is increasing, with some shouting down ethanol’s claim to lower greenhouse gas emissions, others touting the tax credit’s job-creation capabilities and still others lamenting the diversion of farmland for fuel.
Now, Congress will soon weigh in. Several senators have introduced legislation that would extend the tax credit through 2015. If the bill fails, the credit will expire at the end of this year.
The extension bill, introduced by Sen. Charles Grassley (R-Iowa), would continue the credit of $0.45 per gallon of ethanol from large producers and $0.10 per gallon from smaller producers. It also would extend a larger tax credit for producers of cellulosic ethanol, at $1.01 per gallon; the current cellulosic credit expires at the end of 2012.
Environmentalist opponents of corn ethanol generally agree that there is a place for biofuel development, but they say the focus on corn ethanol does little to make a dent in greenhouse gas emissions, can cause food price spikes like those seen in 2008 and diverts federal resources away from developing other sustainable biofuels.
“Continuing to use federal subsidies and mandates to expand the corn ethanol industry is a mistake on many levels,” said Craig Cox, the senior vice president for agricultural and natural resources at the Environmental Working Group. “If the corn ethanol supporters want to extend the tax credit, they need to cut spending somewhere else. And that potentially puts at risk all kinds of alternatives that we think would be a much better public investment.”
Among those better investments in Cox's view are improvements in vehicle fuel efficiency, as well as a stronger push toward advanced biofuels that don’t require food crops like corn.
The Environmental Working Group found that in 2007, ethanol received 76 percent of all the federal tax credits given out to renewable energy, including wind, solar and geothermal. This amounted to $3 billion to ethanol alone, and as Autumn Hanna of Taxpayers for Common Sense pointed out, these dollars go to the ethanol blenders rather than farmers.
The tax credit, Hanna said, “does little more than pad the pockets of big oil companies like Shell. The ethanol tax credit has already cost taxpayers more than $20 billion in the last five years and, if extended, taxpayers stand to lose billions more. Since the 1970's, taxpayers have heavily subsidized corn ethanol. It’s time this mature energy industry stand on its own two feet.”
Legislators from agricultural states claim that ethanol won’t prosper on its own yet, and that more than 100,000 jobs would be lost if the credit were allowed to lapse.
The chairman of the Senate Budget Committee, Kent Conrad (D-N.D.), co-sponsored the bill and said that skyrocketing energy costs and reliance on oil imports put the country in danger.
“We must be committed to coming together in a bipartisan way to lessen our dependence on foreign oil, while aggressively pursuing alternative sources of energy such as biofuels,” Conrad said.
Resources Diverted
Congress mandated a huge scale-up of biofuel production with the Energy Independence and Security Act of 2007. Federal law calls for 12 billion gallons this year, rising to 36 billion gallons annually by 2022. By that point, 60 percent must come from advanced feedstocks like switchgrass.
Cox argues that extending the ethanol tax credits now will only divert resources from much-needed research into those second-generation fuels.
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Corn ethanol industry will accelerate adoption of cellulosic
Cellulosic ethanol will become commercially viable only when produced in large volume. Having a healthy starch based ethanol industry in place will enable cellolosic ethanol to reach commercial viability much quicker (once the technical issues are worked out) as producers will be able to adopt ongoing ethanol operations to produce cellulosic ethanol.
This will happen much quicker with the ethanol production facilities already in place and operating. Building the capacity from scratch for cellulosic would be slower and incredibly wasteful as we already have invested in the infrastructure capable of producing 11 Billion gallons annually.
This is just common industrial engineering sense.
Let it die
Look, the corn ethanol industry already gets mandated use, a subsidy, and a tariff, and it fully admits that it will collapse if any of these supports are pulled. This is ridiculous. Cellulosic ethanol does not exist and may never exist. It's a red herring being used by the corn ethanol lobby:
http://biodiversivist.blogspot.com/2010/04/corn-ethanol-propaganda-blitz...
The EPA was counting on getting about 70% of its cellulosic ethanol from Cello, which was just convicted of fraud and will not be producing any alcohol.(1)
Range fuels initially promised to produce a billion gallons of cellulosic ethanol from its new plant. This year it announced that it will instead be producing methanol, and not very much of it.(2)
(1) http://www.consumerenergyreport.com/2009/07/07/cello-a-lesson-in-due-dil...
(2) http://www.consumerenergyreport.com/2010/02/23/broken-promises-from-rang...
Absolutely extend it !!!
We need this tax credit extended so ethanol producers can move their product. Without this incentive oil companies/blenders will not use it, like trying to get Pepsi to sell Coke in their pop machines. Or even worse, they will import ethanol from Brazil, where slave labor is used extensively in the production and harvest of sugarcane. With corn yields accelerating we need ethanol in our fuel supply, it helps keep gas prices lower and keeps our agricultural economy strong, which benefits everyone. Corn ethanol has a high octane rating and someday soon auto manufacturers will optimise engines to run on ethanol and fuel mileage will be as good if not better than running on gasoline. Ethanol has a lot of promise, we just have to be patient and let things evolve and take shape. The American Farmer can provide both FOOD and FUEL for this nation.
"In 2009, the ethanol
"In 2009, the ethanol industry actually returned 3.8 billion more to the federal treasury than was spent on the tax credit (RFA). What's the problem?"
Please provide a citation for that "factoid". Even if it generated more in taxes than the VEETC on a gross scale, I suspect that the number does not take account of reduced economic activity (and hence taxes) in sectors from which resources were diverted to feed the ethanol industry. Moreover, it begs the question of "return on investment" from the subsidy. Even taking that number at face value, it implies a poor return compared with other industries receiving no or small amounts of subsidies, for which the tax take is pure profit to the govermment.
What the industry still does not address is the charge that with the RFS2 in place, the VEETC is redundant, and simply constitutes a pure wealth transfer -- part to the blenders themselves, and part to the ethanol industry and corn producers. Nathanael Greene of the NRDC has shown that the cost per marginal gallon of U.S. energy produced by retaining the VEETC and the import tariff would be over $4 per gallon of ethanol ($6 per gallon of gasoline equivalent). That level and scale of cost-ineffectiveness is breathtaking. We're talking about $34 billion dollars being spent under the VEETC if it is extended for 5 years. I know plenty of transport experts who feel confident that with that kind of money they could save a lot more gasoline than would be saved by extending the VEETC.
The case that the VEETC is needed to speed up investment in cellulosic ethanol is completely bogus. Cellulosic ethanol already has its own $1.01/gallon producer tax credit -- plus government loan guarantees, state financial assistance, the works.
The VEETC has nothing to do with cellulosic ethanol and everything to do with corn ethanol and its insatiable demands on the public purse.
In 2009, the ethanol
In 2009, the ethanol industry actually returned 3.8 billion more to the federal treasury than was spent on the tax credit (RFA). What's the problem?
In terms of climate, I'm still 100% convinced that corn kernel based ethanol isn't a climate issue. But that aside, I completely agree with Bill_USA that we need to continue to keep the current ethanol production going for energy security and to speed up investment in cellulosic. Investment being the key word. If our nation and our government aren't willing to invest in renewable fuels, banks won't be willing either. The end.
Russ, you can make cellulosic ethanol in a corn-based ethanol refinery. The industry is already doing it. They are currently testing technology in some plants that will separate the kernel into all its parts and make ethanol from the fiber only, leaving corn oil and an animal feed as byproducts. This ethanol is eligible for the advance biofuel section of the RFS.
Five more years?
The industry's arguments that the tax credit and the tariff (the amount of which is linked to the tax credit, with a lag) need to remain in place for various reasons, such as ensuring that the "bridge" between starch-based and cellulosic-based ethanol conveniently ignores that, thanks to the blending mandate, the industry would not disappear were these decades-long policy interventions to come to an end. Mainly what would happen is that corn ethanol output would simply not grow as fast as if one had all three policies (mandate, tax credit, and tariff) in place. So, the "bridge" (to the extent it exists at all) would not fall down.
But, as various analysts (notably the NRDC's Nathanael Greene) have shown, the cost of keeping the tax credit and tariff would be over $4 per gallon per marginal gallon of corn ethanol produced. By contrast, the producer tax credit for cellulosic ethanol is $1 (plus one penny) per gallon.
Indeed, given that corn ethanol has pushed the industry up against the blend wall before the cellulosic ethanol industry could get going, one could make the argument that corn ethanol production is actually making it harder for cellulosic production to take off.
All of these arguments, in any case, ignore a pretty fundamental fact: the rate at which the tax credit was set owes nothing to any kind of a careful weighing up of the costs and benefits of supporting ethanol. It all goes back to a decision 32 years ago to exempt gasahol (E10) from the federal fuel-excise tax. That eventually morphed into the volumetric ethanol excise tax credit (VEETC) -- actually, more like an income-tax credit -- but its basis is still the same.
So when the industry defends the current VEETC, it is essentially defending a subsidy (and related tariff) that is set at a level that is as arbitrary as the original decision to exempt E10 from the fuel tax.
P.S., I have to say I get a kick out of Bill_USA's nom de plume -- because that is exactly what his proposals imply: hand the U.S. taxpayer with a big, fat Bill for $34 billion.
Don't extend it
Bill_USA 's contention that corn ethanol will somehow make cellulosic ethanol viable is pure conjecture.
You cannot make cellulosic ethanol with a corn ethanol refinery. Only the last third of the process is the same and the last thing the corn ethanol industry wants is a competitor. Should cellulosic get close to viability the corn ethanol lobby will find a way to kill it.
It's obvious by now that this fuel is not viable. Pull the plug before it becomes too big to fail:
http://biodiversivist.blogspot.com/2010/04/corn-ethanol-propaganda-blitz...
For tax credit for energy security & to speed cellulosic Ethanol
We need to keep the blenders excise tax credit first for energy security (50% to 100% chance Israel will bomb Iranian enrichment sites in next 1 to 2 years) and to speed commercialization of cellulosic ethanol.
Having the starch based domestic ethanol industry in place will speed the commercialization of cellulosic ethanol by about ten years. Adapting existing production infrastructure will facilitate and make cellulosic ethanol commercially viable much quicker than if we didn't have the production infrastructure in place. Once you break up the cellulose molecules with enzymes the rest of the process uses the same equipment as is used in starch based ethanol production. Killing off the domestic ethanol production infrastructure would be the dumbest thing we could do.
Every bit of time saved in bringing cellulosic ethanol to commercialization is critical in terms of Global Warming.
The tax credit should not be extended
How much are consumers paying for ethanol blends?Based on the one-third reduction in gas mileage compared to pure gasoline and the amount that the 45 cent per gallon tax credit should reduce the price at the pump, it takes a substantial price reduction to make ethanol blends economical. With pure gasoline at $2.65 per gallon it would take the following price reductions per gallon just to make ethanol blends EQUAL in price to pure gasoline.
E15 $0.20
E30 $0.40
E40 $0.53
E85 $1.13
The math is simple. Just multiply 33.3% mileage reduction by the percent ethanol in the blend. Multiply the result by the pump price. Then multiply the percent ethanol in the blend by the 45 cent tax credit and add the result to amount calculated above. You have to get this much reduction in price before ethanol even starts to save you money. So how much are you saiving?
Sometimes what appears to be a good deal is not so good after all. Ethanol advocates brag about the lower price of ethanol but they don't say much about lower mileage or who truly pays for the tax credits. Why should U.S. citizens be forced to pay higher fuel prices for many years while citizens of other countries take advantage of the remaining supplies of lower priced more efficient fossil fuels available on the planet.
The tax credit should be
The tax credit should be extended- but if you have to make cuts- then extend it only to those who blend concentrations of E20 or higher. As a consumer of E85, I find that we have very little in place to spur the expansion of stations to sell E85. I use only E85, but that's because I know where the stations are. Many people don't know.
Yes- extend the tax credit for E85 and mid-level blends. And raise the gasoline tax by a nickle- and use that money to pay for stations to convert. Once we get 15,000 or 20,000 stations out there selling E85 and mid-level blends (E20-E30-E40-E50-E60 from blender pumps), then we can back off the tax credit. But for now, we need it, especially to promote E85. The middle-men are making all the money from the tax credits now- having more pumps out there will spur real competition, and keep the price of E85 low.
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